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Gift taxing and the non-profit efficiency scale by sylvng
April 11, 2009, 6:36 pm
Filed under: General Charity Musings | Tags: , , , ,

Just as I was writing a series of posts on online donation processing costs, I came across this WSJ article that talks about how some non-profits are increasing the “gift tax” levied on donations. Essentially that means they’re taking a larger cut of every donation to cover fundraising operations; in recession times like these, large gifts are hard to come by, and as I talked before, transaction costs are heavy for small donation amounts. This article cites examples of 2 trends that I definitely think we’ll be seeing more of: 1) donors asking non-profits to publish or communicate administration fees, and 2) non-profits asking donors to increase donation amounts to cover admin fees.

And let’s face it, donors are critical these days of non-profit efficiency. The article talks about a 90% efficiency as being good. Here’s how I see the scale:

  • 90% or higher efficiency  – amazing
  • 85% – 90% efficiency – great
  • 80% – 85% efficiency – normal
  • Anything else – you should definitely ask questions before donation

Of course, efficiency isn’t everything, and there are some types of good work that you just can’t do without lots of overhead. My other problem with the efficiency scale is that it’s very short-sighted and doesn’t measure long term investment very well. Perhaps an organization decides to run a fundraising gala, and invites some very affulent people to it. The cost of the gala may be so high that it brings down the overall efficiency of the organization, but only for the short term. Once the organization solidifies relationships and those relationships pay off, the efficiency may actually be much better than originally stated, but because efficiency is measured every year, and not on a campaign basis, the numbers are muddied.

Thoughts on this anyone?

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